microeconomics ch.5: price controls

When a government intervenes to regulate prices.

An upper limit for a price control.

A lower limit for a price control.

1. Deadweight loss from inefficiently low quantity.
2. Inefficient allocation to consumers.
3. Wasted resources.
4. Inefficiently low quality.

The lost surplus associated with the transactions that no longer occur due to market interaction. (See figure 5-4 pg. 132). Due to low quantity stemming from government.

Some people who want the good badly and are willing to pay a high price don't get it, and some people who care relatively little about the good and are only willing to pay a low price still manage to get it. ex. rent controlled apartments.

People expend money, effort, and time to cope with the shortages caused by a price ceiling (or the excess created by a price floor). ex. standing in line for gasoline because of shortages and butter mountain for excess.

Sellers offer low quality goods at a low price even though buyers would prefer a higher quality at a higher price. ex. rent controlled apartments in poor repair don't collect money for fixes because of price ceiling.

A market in which goods and services are bought and sold illegally-either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling.

A legal floor on the wage rate, which is the market price of labor.

1. Deadweight loss from inefficiently low quantity.
2. Inefficient allocation of sales among sellers.
3. Wasted Resources
4. Inefficiently high quality.

Those who would be willing to sell the good at the lowest price are not always those who actually manage to sell it.

Sellers offer high quality goods at a high price, even though buyers would prefer a lower quality at a lower price.

An upper limit on the quantity of some good that can be bought or sold.

The total amount of the good that can be legally transacted.

A thing which gives its owner the right to supply a good.

The price of a given quantity at which consumers will demand that amount/quantity.

The price of a given quantity at which producers will supply that quantity.

Caused by a quantity control (quota), which creates a gap between the demand price and the supply price of a good; that is the price paid by buyers ends up being higher than that received by sellers.

The difference between the demand and supply price at the quota limit is the quota rent; Or in other words, the earnings that accrue to the license holder from ownership of the right to sell the good. It is equal to the market price of the license when the licenses are traded. Think taxi medallions.